Merchants have been transitioning to ecommerce for over a decade, with newer Merchants focusing solely on the online space. Digital displacement proliferated prior to the pandemic, but COVID-19 has exacerbated the rift between brick-and-mortar and online stores. The elimination of geographical challenges has made the online space hypercompetitive and has also reshaped how merchants do business.

Differentiation and a clear focus on enhancing customer experiences are critical to surviving in a crowded market. Both of these require flexibility, speed, and agility to execute on strategic initiatives. In short, merchants have reached a point of reckoning with digital transformation. Despite some hesitation to invest in digital transformation initiatives, players are now highly investing in digital technology to reap the benefits of omni-channel presence. As a result, global IT spending is expected to reach $4.5 trillion in 2023, a 2.4 percent increase from 2022.

The Innovation Journey

Organizations can be divided into five different categories that reflect their approach to business transformation and innovation:

Emerging — These organizations have a strong emphasis on innovation but are behind the market when it comes to execution and delivery. As of reports from 2021, 90% of companies that experienced growth had innovation as a top priority and direct support from    But, several difficulties may arise in execution and delivery, due to which not all companies that choose innovation are able to see growth.

Laggards — These organizations are behind the curve in innovation and often outsource services. They are aware of their challenges but not actively engaged in improving them, and they are behind the market when it comes to innovation in the customer experience.

Trailblazers — These organizations are strong in digital flexibility and structure their businesses around innovation. They lead in adopting technology and delivering new products. According to recent reports, 89% of board members say digital accessibility is now integrated into all business growth, which has the potential to make them more competitive and profitable.

Advanced — These organizations are strongly focused on making innovation an enterprise-wide endeavor. They have documented strategies around tech adoption and product innovation and are leaders in the latter.

Tech-Led — These organizations are weak in innovation and enterprise-wide approaches but strong when it comes to investing in technology. That said, they are rarely in the lead regarding product innovation and tend to have centrally-driven ideas and technology.

Most merchants fall into either the Emerging, Tech-led, or Laggard categories. No merchant segments (telecoms, hospitality, digital goods, and retail) fall into the Trailblazer category and all lag behind retail banks, corporate banks, and fintech companies. In existing stable markets, the number of retail payment transactions has grown at a 13% CAGR between 2018 and 2021 globally, whereas in emerging markets, this rate is 25%. That said, the focus on delivery and execution is lacking. On the other hand, merchants invest in technology, but lack the cross-team collaboration element or an innovation nucleus within the organization.

Perhaps more concerning is the number of large merchants that fall into the Laggard category. Currently, 16% of large merchants fall into this bucket, with very few appearing in the Advanced or Trailblazer categories. This rift could spell major challenges for large merchants who continue to fall behind in innovation initiatives even as the marketplace becomes more competitive.

Closing the Gap With Technology

One major challenge that larger organizations may face in the journey to adopting emerging technologies, modernizing systems, and advancing innovation initiatives is their sheer company size that makes it difficult to remain agile and flexible amidst rapidly changing market demands. Infrastructure management should be a primary focus, and these organizations must aim to balance existing infrastructure alongside the necessary transformation to stay ahead of the curve.

Cloud Technologies

Of all merchant segments, the global cloud computing industry has a market size of $480.04 billion, as of 2022, and 94% of enterprises use cloud services successfully. This drive for operational efficiency is meant to pave the way for fast innovation in a rapidly evolving space. Most of the merchants say they plan to move mission-critical workloads to the public cloud, and a significant chunk of those are telecoms and retailers.

Security

Merchants are also focused on security as data breaches continue to rise, and  as soon as they believe a merchant does not have the necessary security in place. Globally, the biggest concern for managers working on business continuity and operational efficiency is the threat of getting breached because, as of recent reports, there is a new data breach every 11 seconds, and 28% of breaches occur in small businesses, which become the reason for shutting down operations within 6 months of the breach. Also, merchants who fall into the Trailblazer category are less concerned about security, which may be a reflection of the effectiveness of previous investments around fraud and risk mitigation.

Artificial Intelligence (AI)

Artificial Intelligence (AI) is also on the table when merchants look at promising emerging technologies to support innovation. The telecom and hospitality sectors are especially focused on AI, and around one-third of organizations use AI across multiple businesses.

Conclusion

Whether a ‘Laggard’ or a ‘Trailblazer’, one thing is clear: innovation must remain a top priority to differentiate and remain competitive in a rapidly changing and hypercompetitive marketplace. Companies must be diligent in balancing technology and financial resources with the future needs of consumers. Taking action now to implement new technologies and focus on digital transformation will pay dividends in the organization’s ability to weather new entrants and serve customers at the highest level.

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